'There is not a standard picture of impact in Europe but we need to work together to build a real European impact ecosystem.'
Interview with Elodie Donjon, investment manager @ the European Investment Fund (EIF)
More than 10 years after the launch of the “Social Impact Accelerator”, EIF's first mandate to support social enterprises, impact has become a buzzword in private equity. But what are the dynamics of this investment segment in Europe? Is impact investing progressing at the same pace across the continent? What is the role of public and European institutions? And that of GPs? How can we move beyond the trend and make impact the new standard?
In this interview, Elodie Donjon, investment manager at the EIF, provides an interesting insight into the evolution of impact investing in Europe and the role of European institutions in shaping its trajectory.
From this European panorama of impact investment emerges a fundamental observation: despite varying degrees of maturity across countries and different definitions attributed to impact, we must collectively highlight successes and continue to prove that aligning impact and financial performance is possible. These are the necessary conditions to foster the growth of a real European impact ecosystem.
Could you introduce yourself and tell us about your experience within the European Investment Fund (EIF) ?
I joined the EIF 20 years ago, in 2004. It was a bit by chance: after graduating from my bachelor's degree in marketing and communication at Sup de Co, I was looking for a job in Luxembourg, closer to my hometown in Lorraine than Paris. I was recruited as a temp worker at the EIF and nine months turned into 20 years.
I joined the investment team in 2012, starting out in private equity before turning to venture capital in 2017. It’s with the venture capital team that I gained experience in all aspects of early stage tech and life science funds, and discovered impact investing. For the last 3 years, I've been exclusively dedicated to impact, particularly on social matters, but increasingly on environmental matters too.
I fell in love with EIF's mission, which remains to indirectly support SMEs in accessing finance, but the scale of which has changed a lot in 20 years: in 2004 we were 70 and invested in a handful of new funds each year. We are now 800 and, last year, we invested in 138 new funds with a budget of over 5.5 billion euros.
How would you describe the impact investing dynamic in Europe?
At the EIF, we started making our first impact investments in 2013, under the “Social impact accelerator” mandate (the first pan-European public-private partnership addressing the growing need for availability of equity finance to support social enterprises). Since then, the ecosystem has completely changed, with a marked acceleration in its growth over the last 3 to 4 years. But impact investing remains very different from one country to another.
If we compare Europe to other geographies: the United States of America remains the most advanced market, while Asia is at an early stage of development. As for Africa, a lot of projects are being developed there — it is an emerging market, but a promising one. Europe, however, continues to be a driving force in impact investing, particularly in the area of climate change: every year, the number of teams targeting this segment and the number of investments made are exponential. Unfortunately, the growth of environmental impact investment seems to be taking place at the expense of social impact.
Are there significant disparities between European countries?
Yes, there is not a standard picture of impact in Europe. But it is inherent to impact, which is very localised, by definition. Each country has its own way of managing its impact ecosystem and launching funds, with still very little crossover between countries. Unlike in tech, where strategies are almost systematically pan-European, in impact investing, very few teams target multiple countries.
If we look at continental Europe: France, Germany and the Netherlands are the biggest markets in the impact segment. France is the leader in social impact. In fact, it’s the EIF’s biggest market: we have supported 14 different funds, with over 220 million euros invested. It is also the market with the most transactions, the most different strategies, and the most LPs and investors interested in these strategies. Germany comes a long way behind, followed by Italy; relatively equivalent amounts are invested in these two countries.
When it comes to climate change, Germany is a real driving force. But French investment teams tend to shift their focus towards climate. We will see how these investments develop over the next few years.
What is the role of financial institutions such as the EIF in the development of impact investing?
I think institutions give a lot of impetus to this movement. Actually, the EIF was a forerunner in impact investing: in the early 2010s, Uli Grabenwarter (the director of EIF’s Equity investment activities) took a sabbatical to carry out a study on impact investing and the link between economic and social performances. On his return, he became a driving force behind the “Social impact accelerator” mandate, which brought together various public investors and a significant investment from the European Investment Bank as well as other financial institutions which joined the mandate. From there, discussions around impact investing developed and so did the European Commission’s interest. Then, the European Commission gave us another mandate to support impact investments, and its interest never waned.
Public or semi-public support, like the EIF’s, is fundamental, as private stakeholders can not create or support a market alone. If we look at the EIF's influence on the venture capital market, for example: we have played a key role in the growth of impact investing as we have never been afraid of investing in innovative strategies and supporting first-time teams. Just as we have done in the VC sector in the past.
But what does this mean in practical terms? Firstly, we raise awareness among all the stakeholders in the European investment ecosystem. We try to publicise our impact strategy as widely as possible, to show that these strategies work, and that it makes sense to support funds that combine impact and economic profit. Secondly, our development mandates allow us to play a catalytic role. The European Commission really wants us to be innovative in the strategies we support, allowing us to go where other institutions don't, and to invest in emerging countries, markets and teams… We can take risks very early on — something that other European or public institutions can not necessarily do. But it needs to be done to create a signalling effect for other investors.
Another particularity of the EIF is our ability to invest more than 50% of funds’ capital, depending on certain parameters. Indeed, the European Commission allows us to go up to 75% of the funds’ capital on certain markets, and notably for social impact funds. Without this boost, some of these funds could not materialise, or would operate at suboptimal sizes.
How could these trends be accelerated?
As part of the impact ecosystem, we must work together. We need to demonstrate the attractiveness of the impact investment segment: it is possible to have a positive social or environmental impact, while creating economic value. At present, impact remains very confidential, we talk about it at dedicated conferences… But it needs to become mainstream. To do so, we have to communicate about our successes — which we don’t do enough of.
On the other hand, fundraising continues to be a major concern: the number of investors and LPs interested in impact is still limited. We have to persuade them, collectively, by drawing on GPs’ experiences and expertise in impact investing. Especially since impact became the buzzword of 2023. All at once, everyone was seeking impact, and many GPs and LPs started to invest in this segment. Let’s capitalise on this momentum to attract more investors, while ensuring that climate investments do not come at the expense of social investments.
How do you assess the future of impact investing?
I believe we have reached a turning point, especially in social impact: the first impact funds were relatively small, testing strategies, demonstrating that there was dealflow and that it was possible to raise funds on the basis of a social impact strategy. Little by little, funds raised more capital.
From now on and in the years to come, we are going to witness the maturation of these funds: the first exits, the first examples that this model works financially. These exits won’t be Nasdaq exits, but looking for financial unicorns only is, in any case, out of step with the impact ecosystem’s mindset.
Over the next few years, we will therefore be able to produce concrete evidence of the value of impact investments and their financial performance. Leveraging on this momentum, we will be able to attract more investors to the ecosystem and then expand it outside countries like France, Germany, Italy and the Netherlands. To build a real European impact ecosystem.